* European corporate bankruptcies higher than pre-crisis
* EU wants early warning alerts to prevent bankruptcies
* Companies to receive support for early restructuring
(Adds link to graphic on EU insolvencies)
By Francesco Guarascio
BRUSSELS, Oct 5 An external early warning system
for companies at risk of insolvency is central to a European
Commission's draft proposal to cut the region's bankruptcy
problem and help banks recoup bad loans.
Non-performing loans (NPLs) on the euro zone's main lenders'
balance sheets neared 1 trillion euros ($1.1 trillion) last
year, about 9 percent of the bloc's gross domestic product,
hitting banks' ability to make money on corporate lending.
EU data shows corporate insolvencies spiked after the
2007-08 financial crisis and are still much higher than before,
with half of new firms not surviving their first five years,
pushing up unemployment rates in still weak economies.
In a bid to tackle the problem, the Commission wants common
EU rules to help troubled companies restructure their business
and avoid bankruptcy, a draft law seen by Reuters said. This
should also allow creditors to recover their loans more easily.
In Western European countries, nearly 175,000 bankruptcies
were recorded last year, up from 130,000 in 2007 before the
financial crisis struck Europe, data from Creditreform, a
consultancy, shows, with a steep rise in insolvencies mostly in
southern European countries. (tmsnrt.rs/2dtNHd1)
Meanwhile, banks' non-performing loans as a share of total
loans grew threefold in Italy to almost 18 percent, the highest
in the euro zone after Greece, nearly five times in Portugal and
almost seven times in Spain between 2007 and 2015, World Bank
In July, Italy's Banca Monte dei Paschi, the
world's oldest bank, was forced to devise a rescue plan to sell
some of its NPLs and raise capital to deal with the problem.
Banking and business representatives welcomed the
Commission's draft proposal, which will be finalised and
unveiled on Oct. 25, according to the EU Executive's agenda, in
the hope it will help reverse Europe's insolvency trend.
The Commission wants an early warning system involving
"external intervention" when firms first show signs of stress.
This may be triggered by banks or accountants and lead to a
restructuring to salvage the healthy parts of the business,
although corporate trade associations would prefer a "voluntary"
warning from inside a company, an industry official said.
In a concession to the business lobby, the Commission
proposed a 4-month grace period to allow companies to
restructure without servicing their debt and tax repayment plans
if they are pursuing genuine restructuring, the draft said.
But some bankers object to such an extension.
"Four months is too long," a bank official said, noting
there is already a 90-day period during which firms can skip
debt payments before they are treated as non-performing.
The plan aims to avoid lengthy litigation and bankruptcies
and would rely instead on mediators and supervisors, while
creditors will have a say in restructurings, with majority
decisions removing the scope for minority shareholder holdouts.
Western Europe insolvencies have fallen from a 2013 peak
when nearly 193,000 companies filed for bankruptcy, but are more
than three times higher than in 2007 in Italy and Portugal.
Bankruptcies represent only a fraction of liquidations, as
micro-enterprises usually close without insolvency proceedings.
In Italy, the overall number of companies shrank from more
than 4 million in 2008 to 3.8 million in 2014, according to the
EU statistics office, while the number of Portuguese businesses
dropped by 21 percent and in Spain by around 9 percent.
The EU executive is also reviewing national procedures for
banks to recover bad loans, while the European Central Bank
launched a consultation in September on dealing with NPLs.
And the head of the European Banking Authority, Andrea
Enria, called on Wednesday for public support to develop a
European market for banks' bad loans and speed-up their sale.
The Commission proposal will need approval from the Council
of EU states and the European Parliament before becoming law and
EU countries will then have to translate it into their own laws.
($1 = 0.8925 euros)
(Editing by Alexander Smith)